Rising costs ground airline industry profits

OTTAWA - After barely breaking even last year, Canada's airline industry can expect to post modest profits of $150 million in 2008. But profits will remain thin over the next five years, according to the Conference Board's Canadian Industrial Outlook: Canada's Air Transportation Industry - Winter 2008.

Many factors are in the industry's favour. Increased demand for air travel has led to more occupied seats per flight and healthy revenue growth. In addition, the high dollar is making it cheaper to maintain and replace existing aircraft.

"It should be boom times for Canadian airlines," said Alexander Fritsche, Senior Economist. "However, record fuel prices and labour shortages are driving up costs, while intense competition is preventing carriers from raising prices."

Fuel prices and labour costs should moderate somewhat starting this year, easing some of the upward pressure on costs. Nevertheless, industry costs are expected to rise by an average of 6.5 per cent annually over the next 5 years.

Continued growth in sales, improvements in labour productivity and more efficient use of materials will allow profits to improve steadily through 2012. However, competitive pressures are expected to keep industry margins thin over the forecast period.